First Data Corp. is looking to expand consumers' ability to add funds to their general-purpose prepaid debit cards by adding a reload function to its Star electronic funds transfer network.
First Data announced the service last week, and it will be available at participating merchants and ATMs. The system will enable cardholders to activate and load the card initially and conduct split-tender purchases at the point of sale.
Though the move potentially gives consumers more choices to load Star-branded cards, it shows how different segments of the payments industry view the maturing prepaid card market, says Tim Sloane, the director of the prepaid advisory service at Mercator Advisory Group Inc. in Maynard, Mass.
"The opportunities surrounding reloadable, general-purpose cards [are] getting very real, and as a result First Data looks at that and says, 'we need a piece of it,'" Sloane says.
No merchants or ATMs yet support the function. First Data is in negotiations with Star-affiliated financial companies and merchant acquirers to add the service, says Julie Saville, Star vice president of product development.
"We have all the infrastructure in place, and now we're ready to launch," she says.
The service would give Star-branded card users the ability to add funds at ATMs and POS terminals using cash, conventional debit cards or paychecks, Saville says, noting how funds are added at the ATM will depend on the deployer.
"We're trying to get on the ground floor of being the new functionality for ATMs," she says.
On the acquirer side, Star is positioning the service as a simple addition to a merchant's existing POS system.
Prepaid card issuers have expressed the most interest in taking advantage of the reload network, Saville says.
A key challenge in the prepaid market has been convincing consumers to use their cards after funds in the accounts are depleted instead of buying new ones.
Prepaid issuers hope that adding new features and functions to their cards will reduce customer attrition, and Star believes the reload system can be another differentiating option for financial institutions, Saville says.
However, Mercator's Sloane cautions that First Data could face some challenges. From the merchant perspective, managing funds at the point of sale could become a problem, he says.
When a consumer uses a payment card, funds are being transferred from the bank to the merchant through back-end systems. With Star's system, the opposite is happening, Sloane says.
When a customer hands over $100 to load into the card account, "how do you make sure the clerk is really managing the [register] properly?" he asked. "There are all sorts of new fraud vectors introduced from a merchant perspective."
The challenge for ATM deployers will be reprogramming machines to add the reload functionality. Another potential roadblock is the small number of off-premise intelligent-deposit ATMs.
Cardtronics Inc., an ATM independent sales organization, has experimented with advanced-function machines, and some of its bank cobranded machines likely could participate in Star's reload network, according to Leon Majors, president of Phoenix Payments Systems Practice.
"Nautilus [Hyosung] has developed the technology but hasn't deployed many with the capability in the U.S.," Majors writes to ATM&Debit News in an e-mail.
Despite the challenges, Sloane believes prepaid card managers will view Star's system as something that "will help initiate loads, keep money on the card and make it easier for consumers to put funds on the card." ATM